Community Values: the changing business of television.

Antonioni, P. (2016). Community Values: the changing business of television. [online] Economy Making economics less confusing. Available at: https://www.ecnmy.org/engage/community-values-the-shifting-economics-of-the-broadcasting-industry/ [Accessed 13 Oct. 2019].

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(Antonioni, 2016)

NOTES:
Broadcasting can be a brutal experience for producers and talents, with the risk of money loss from a show, broadcasters will drop a show if it shows any signs of this (Antonioni, 2016).

Broadcasted shows rely on advertising companies to make money back (and syndication); but if the views are low, then the money won't be made back as advertisers and other channels will not be interested in investing in the program or time slots (Antonioni, 2016).

Television costs are upfront (Antonioni, 2016).

Television also had issues with too many channels and its competitiveness (Antonioni, 2016).

Unlike streaming, that has a smaller amount of episodes and seasons, broadcasted shows have many more episodes and seasons, and the longer a show goes on the more cost increases (Antonioni, 2016).

QUOTES:

It looks as though the US comedy Community is to depart our airwaves for good. And while the fanboy in me weeps uncontrollably, the economist in me is delighted to have been given a perfect case study on the brutal economics that lies behind the entertainment we all get to enjoy.

Created by Dan Harmon, Community spent most of its first three seasons (broadcast by NBC) ‘on the bubble’, constantly waiting to find out if the cash would be available for it to get another series, trading off critical goodwill and fan appreciation against audience numbers that failed to impress the advertisers.

 TV can be expensive to make and difficult to monetize.

This meant that channels had relatively predictable market share and therefore a pretty simple pitch to their advertisers. 

But as cable and satellite competitors came into the market, broadcasting as a whole found itself having to reinvent its pitch - as you have more channels fighting over viewership, channels began to emphasize the ‘quality’ (read demography) of their audience. Thus, broadcasters learned that there was money to be made from what may have been regarded as niche shows beforehand - think Breaking Bad - and some increase in variety to viewers was the benefit.

To see how TV channels used to behave, consider this scenario. Imagine that there are 10 million people in your audience - and of them, seven million like soaps, two million like sitcoms and the remaining righteous one million prefer zombie apocalypse stories.

Now imagine the decision of what show to produce for each successive channel. The first will produce soaps because that’s the biggest slice of the audience. The second will also produce soaps because seven million divided by two channels is 3.5 million, which is still bigger than the next biggest slice. The third will, by the same manner of calculation, produce soap operas. The fourth, however, will produce sitcoms (because seven divided by four is less than two!). It’s not until you open up a tenth channel that anyone will produce zombie shows!

Channels also face two key biases, and these don’t change as you increase the number of channels. The first is that you’ll not make any program where the upfront costs are too high. As television costs are all upfront - it costs the same to make a program whether one person sees it or a billion people watch - this is a key point for the industry. The second bias is that you’ll not make a program where the buyer is to price-sensitive to pay more than the competitive norm for the show.

The introduction of the internet removes the problem of having enough transmission space on which to broadcast but does not change the two biases. 

Television was not initially affected by the internet, while bandwidth constraints made it near impossible to download programs. But increased broadband penetration and bandwidth have made ‘untethering’ from the television viable. The result has been that a boring and narrowly defined industry has had to redefine itself to keep up with these new conditions. At the same time, companies that have emerged from internet businesses, rather than the old broadcasting industry, have started to claim share of viewers eyeballs with new offerings: House Of Cards (Netflix), The Man In The High Castle (Amazon Prime), Orange Is The New Black (Netflix)

On a good day, and assuming you can get someone to pay for it, this cost structure is a recipe for runaway profit growth. Once you’ve recouped the fixed cost, almost everything is pure profit. On a bad day, however, you’ll never recoup the fixed cost. Thus networks have learned to be brutal with shows, canceling them the moment it looks like the cost of production will outweigh advertising revenues. Sentiment can have little place in the decision when substantial costs have to be recouped.

Add into the mix the difficulty of getting good information on which segments of the potential viewership are actually watching the show and you have a second problem on the revenue side - advertisers need mass reach or a clear demographic slice and without either they’re less likely to stump up. (A quick digression - better data might help, but it’s not necessarily the case that it leads to better matches between viewers and advertisers: For instance I love Game Of Thrones, but that does not necessarily mean that I will have any liking for Shannara Chronicles though they might tick the same ‘visually attractive epic fantasy’ box). Further, the longer a show goes on, the more its cast costs (if you ever hear of a favorite actor being fired from a show, assume money is the reason). If you cannot find a way to monetize the eyeballs of the audience, then you’d best pull the plug before your artistic instincts lead you into bankruptcy.